WARNING: This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

The purpose of the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 (the Bill) is to amend the Income Tax Rates Act 1986 (ITR Act)[1] to increase the tax rate on superannuation funds which are received early by illegal means to
45 per cent.

The Bill is a companion to the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012 (the companion Bill).[2]

The amendments proposed by this Bill and the companion Bill are based on the recommendations of the Super System Review (also known as the ‘Cooper Review’ after the Chair of the Review Committee, Jeremy Cooper).[3]

Details about the policy rationale for this Bill are contained in the Bills Digest for the Superannuation Legislation Amendment (Reducing Illegal Early Release and Other Measures) Bill 2012.[4]

At the time of writing this Bills Digest the Senate Standing Committee for the Scrutiny of Bills had not commented on the Bills.

Financial implications

According to the Explanatory Memorandum:

Commonwealth costs associated with implementation of the [Self-Managed Superannuation Funds] Stronger Super reforms relating to the promotion of illegal early release schemes, administrative directions and penalties contained in the Bill, and the income tax rates amendment contained in the Income Tax Rates Amendment (Unlawful Payments from Regulated Superannuation Funds) Bill 2012 is $17.1 million over five years. These costs will be offset by increases to the SMSF Supervisory Levy.[8]

The Statement of Compatibility with Human Rights can be found at pages 42–43 of the Explanatory Memorandum to the Bill. As required under Part 3 of the Human Rights (ParliamentaryScrutiny) Act 2011 (Cth), the Government has assessed the Bill’s compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bill is compatible.

The definition of ‘unlawful early payment remainder’ is so much of taxable income as is included in assessable income under section 304-10 of the Income Tax Assessment Act 1997 (ITAA).[9] The definition of ‘taxable income’ in section 304-10 and the definition of ‘superannuation benefit’ in section 307-15 of the ITAA have the effect of applying tax to the full amount withdrawn from a superannuation fund—inclusive of any fee or commission that may be paid to the promoter of an early release scheme and not simply the final amount received by the taxpayer.[10]

Items 3 and 4 specify a tax rate of 45 per cent as applying to these amounts for both resident and non-resident tax payers. Under current arrangements, these amounts would be taxed at the tax payer’s marginal rate.[11]

The Australian Institute of Superannuation Trustees (AIST), in commenting on the draft Bill (which is in the same terms as this Bill), considered that an additional penalty, based on a sliding scale of penalties which takes into account an individual’s circumstances should be imposed.[12] The AIST considered that this would be consistent with the recommendations of the Cooper Review.[13]

The Self Managed Superannuation Funds Professionals’ Association of Australia, also commenting on the draft Bill, noted that some types of payments could inadvertently be covered by the definition ‘unlawful early payment remainder’ and that the Explanatory Memorandum ‘should exclude unlawful payments which the Commissioner considers should be excluded after considering all of the relevant factors’.[14]

Item 5 provides that the amendments have effect for the 2013–14 income year and later income years.

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2500.

[10]. The definition of ‘taxable income’ in section 304-10 specifies that assessable income includes ‘the amount of a superannuation benefit’, which is defined in section 307-5 to cover payments from a fund to an individual. This definition is further described in section 307-15 to include payments made to an individual, or received by an individual, if it is made for the individual’s benefit as well as to another person or to an entity at the individual’s request.

[11]. The Explanatory Memorandum notes that the 45 per cent rate is based on that applied to non-complying superannuation funds. It is also equivalent to the top marginal rate for individual taxpayers.

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